For over 10 years, I had implemented the same asset allocation that I originally set off with years ago. I'd do periodic rebalancing, and I'd commit new purchases to the assets which were under-weighted. Setting an AA and sticking with it is a great way to buy low/sell high, as well as control risk. The problem I've run into since then occurred when I went from my postdoc to a real job making a legitimate salary. All of a sudden, my savings was a substantial portion of my assets (e.g., $100k annual savings on a $400k networth in the first year of having a real job). At the same time, international equities continued their massive lagging of US assets. My desire to buy the assets that were performing poorly started to be at strong odds with my desire to control risk (when savings are sufficiently high relative to your NW, you have to buy both the underperforming and overperforming assets with new contributions, and in closer to equal amounts).

So since 2016, I have pretty much only bought international equities and eschewed US stocks. I haven't sold US stocks, but I haven't bought any. This has brought my international % from an initial 33% as specified in my AA to a whopping 51%. With the recent hammering of EM stocks and with international continuing to lag, I'm tempted to continue this process going forward. At the same time, I realize I'm becoming less diversified and not controlling risk as well as I could, and realize that at some point (regardless of valuations), I'll need to address this issue. My current plan is to not let international become over 60% of my portfolio, but we'll see whether I can stick to that rule.

Any others struggle with this? What do you do? I realize it's a personal question about how one views risk and how one wants to control it, but curious how others deal with it.

You are market timing. It may or may not work. Nobody knows (nothing).

I respect you calling it "market timing", and to some degree I agree it is. That said, I think it's also a little extreme of a characterization. I just wanted to be making portfolio purchases that weren't so strongly skewed by the fact that I was paid so little in graduate school and as a postdoc. My investing strategy also contains a good value tilt, because I think there are behavioral biases that cause value to outperform over the long-term. If I simply followed my AA at the beginning, then I would be buying assets that were highly counter to the value-ness that I'm trying to cultivate in my portfolio. Given that choice, I deviated from my AA rather than deviate from my investing style. You can call that "market timing" if you like, and I'm fine if you do, but I don't view it quite so black and white. Market timing typically denotes actions that are taken to try to get some short-term advantage. I'm not doing this. I'm buying the assets that I'm more comfortable holding for the long-term and think will have a better longer term return.

But yes, it does pose a problem because I also care about AA and risk management.

You "think" or "feel" or "have intuition" that International is "low" and you are "buying low" to the point you have more of a "low" thing than you maybe want. This could be the "peak" of international. It never gets higher. I don't know.

I don't know what else to call it. But if market timing is wrong, then just keep doing it or course correct.

"A Stoic believes they don’t control the world around them, only how they respond--and that they must always respond with courage, temperance, wisdom, and justice." --Daily Stoic

I suppose the good news is that there is not that much at stake. If international continues to trail US for decades, then you will have been better off with more in US.
If at some point international starts to do better than US, you will be glad to have the international exposure.
No one knows which of these will happen.
International has been highly correlated with US for a long time, although the slope has not be 1.0.
There is not much to guide how much to have in international. Vanguard did a retrospective review a while ago and concluded that between 20% and 40% international one got the same overall portfolio performance.
If it makes you feel better, then stop buying international until that allocation gets down to a comfortable level. Or keep it where it is.

Just keep in mind that:

No one knows what the performance will be going forward.

We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either |
--Swedroe |
We assume that markets are efficient, that prices are right |
--Fama

I have been getting heavy in int as well, since that was all I'd buy in my taxable. A couple weeks ago I started auto buying 50% us and 50% int in my taxable. I liked that I was getting int "on sale" in my mind, but the reality is i need to stick to my AA, even if that requires buying the overvalued US market. I'm now back on track to my AA.

It's possible int is even more over valued than the US market. Knowbody knows.

Maybe I didn't explain it well. I could certainly rebalance or alter purchase decisions to get back within my AA. But my savings rate is high enough relative to my NW that I'm trying to put more of that new money into the poorly performing investments than my AA would dictate. Essentially, I'm trying to make AA purchase decisions according to my AA but with a NW total that's different than what mine is in actuality. Basically, I learned that my own personal psychology tends to have me buy under-performing assets and that that tends to be more important to me than sticking to an AA percentage that, while not coming out of thin air, was somewhat set arbitrarily (e.g., why 35% international and not 50%?).

I suppose I'm not really talking about a "problem" that I need help solving. I already know how to deal with it based on my own preference for risk, but was just bringing it up for discussion.

My other comment is you should know why you want international -other than Speculating the stocks ate cheap or cheaper than X.

My reasons for holding 30% international are two fold: 1) More diversity, 2) potentially less correlated with U.S. stocks.

My reasons for holding international are the same reasons you have, plus the additional reason that I'm drawn towards assets with lower P/E values. Lower P/E values don't guarantee better returns, but it isn't speculating to say one is currently buying more earnings for less.

You are market timing. It may or may not work. Nobody knows (nothing).

I just wanted to be making portfolio purchases that weren't so strongly skewed by the fact that I was paid so little in graduate school and as a postdoc. My investing strategy also contains a good value tilt, because I think there are behavioral biases that cause value to outperform over the long-term.

How is this relevant? Just that you wish you were able to purchase more international earlier, when your income was lower, and you are making up for it now because your income is higher? Regardless of income, you were and are able to meet your target AA. You have just decided to adjust your target AA. You need to know the reason why. It appears it is because you have a personal hunch that international is undervalued. That is market timing: https://www.bogleheads.org/wiki/Market_timing

If I simply followed my AA at the beginning, then I would be buying assets that were highly counter to the value-ness that I'm trying to cultivate in my portfolio. Given that choice, I deviated from my AA rather than deviate from my investing style. You can call that "market timing" if you like, and I'm fine if you do, but I don't view it quite so black and white. Market timing typically denotes actions that are taken to try to get some short-term advantage. I'm not doing this. I'm buying the assets that I'm more comfortable holding for the long-term and think will have a better longer term return.

This is different than a value tilt. You are not tilting towards what is classified as "value" equities. You are tilting to what you have a hunch is a good value. https://www.investopedia.com/terms/v/valuestock.asp Unless there is good reason to treat international as a "value" equity, which I haven't seen, this is not a tilt but a market-timing guess.

I could certainly rebalance or alter purchase decisions to get back within my AA. But my savings rate is high enough relative to my NW that I'm trying to put more of that new money into the poorly performing investments than my AA would dictate. Essentially, I'm trying to

Basically, I learned that my own personal psychology tends to have me buy under-performing assets and that that tends to be more important to me than sticking to an AA percentage that, while not coming out of thin air, was somewhat set arbitrarily (e.g., why 35% international and not 50%?).

I do understand this, but most folks just set their AA and try to stick to it. Buying whatever is on sale may feel good, but it skews your portfolio. I've felt that TSM has been expensive since 2010, but I set it on autopilot and bought consistently.

This is different than a value tilt. You are not tilting towards what is classified as "value" equities. You are tilting to what you have a hunch is a good value. https://www.investopedia.com/terms/v/valuestock.asp Unless there is good reason to treat international as a "value" equity, which I haven't seen, this is not a tilt but a market-timing guess.

I think I understand what you're saying... when you only have a relatively small amount of savings, you can plug it all into the most underperforming asset each year to balance things back out.

But when your savings are higher, to stick to your AA, you might only put $X into the most underperforming asset (like international) to bring it up to the proper AA amount, but then you have more savings left over, which "should" then be spread among other assets too (including even the over-performing ones).

This is not necessarily a glitch. True, you're not buying EVERYTHING "on sale," but you are buying MORE of what is lower and less of what is higher.

The alternative (let's assume U.S. stocks keep doing well) would be to never ever buy any more U.S. stocks beyond what you started with when you were just starting out. That doesn't really make sense. It's OK to buy some of everything, and more of what is "on sale" / recently underperforming.

I use a simple spreadsheet with the current value of each asset category, then my desired AA% for each category multiplied by my total investment value. Then there is a positive or negative number of what it will take to get from "current" to "desired," and you can buy or sell as necessary (or, if you have sufficient savings, just buy, more of some than others).

I understand your situation, and I'm in a similar one. My husband and I both got pretty big raises in the last 2 years, and so we have a lot of free cash flow to invest or save or use to pay down debt each month. It's hard for us to select a target AA and even harder to stick to one, especially since we have a lot of investment real estate (directly owned rentals as well as real estate partnerships).

In our retirement accounts, new investments go 100% into domestic equities. When things seem frothy I move a bit into bonds just so we have some dry powder to move it back into stocks when the next down turn hits (I moved some last year and some more earlier this year into bonds; currently we are at about 6% total investments in bonds, or 14% of liquid investments in bonds). We are comfortable with 100% equities in retirement/brokerage due to our age (35/40) and the fact that our real estate investments, which are more akin to fixed income, are about 55% of our total investments - so actual equity exposure is more like 33% of total assets.

We still have about $10k a month that accumulates in cash, but we don't have a strict plan of how to allocate that. Our brokerage account is 100% international, but we haven't been investing new cash into that in over a year since we've stayed around our target of 25% of stocks in international. We are comfortable having $0 - $100k in cash (up to 3% of total assets), but for the last few years we've been moving chunks of cash into private real estate partnerships (and one tech startup accelerator and my private company stock) as opportunities arise. We are not wanting to put any more into CML RE now due to how much we have there and the current price levels, so cash is starting to build. We are waiting for a buying opportunity, either from an equities pullback or a new private equity opp that sounds good or to buy some directly owned investment RE if there's a slowdown in that area. But if cash starts to push 5% of assets we'll probably just use excess to pay down debt (even though our mortgages are all pretty cheap).

In short, I understand your impuse to buy more of what might look like an undervalued asset class (intl stock), or at least to avoid buying more of what appears to be an overpriced one (US stock). But you really can't do so at the expense of your target AA, or at least a reasonable target AA. Just because international looks cheap doesn't mean you need 50%+ of your money in that asset. Diversification is key, as we all know. It feels different to leave an investment in X versus using new money to buy X, versus rebalancing by selling Y to buy X - but that's a cognitive bias. They are all different ways to get the exact same result - your target AA. So bite the bullet and buy some bonds and us stocks too. Or some real estate.

But when your savings are higher, to stick to your AA, you might only put $X into the most underperforming asset (like international) to bring it up to the proper AA amount, but then you have more savings left over, which "should" then be spread among other assets too (including even the over-performing ones).

Yes, you understand what I'm saying correctly. And right now what I'm doing is "non-optimal" in that I'm investing in international regardless of how it impacts my AA. Alternatively, I could also create some artificial NW in my spreadsheets (say $1M), and allocate new money to investments as if I had more money invested. This would have the impact of still allowing me to buy assets that were underperforming in greater quantity, but would also direct some into the higher-performing investments, but still less than if I used my actual NW. Right now I guess I'm effectively doing this, but with an effective artificial NW of infinite dollars. And of course, I could just put new contributions towards fixing my AA, which might be a prudent thing to do as well.

Tilting towards factors internationally is always something I'm interested in, but have been wary of doing it due to expense ratios. I did recently bite the bullet on some FDNE, so I've got some value emerging markets now, but I haven't bit the bullet on any international value in the developed space.

In short, I understand your impuse to buy more of what might look like an undervalued asset class (intl stock), or at least to avoid buying more of what appears to be an overpriced one (US stock). But you really can't do so at the expense of your target AA, or at least a reasonable target AA. Just because international looks cheap doesn't mean you need 50%+ of your money in that asset. Diversification is key, as we all know. It feels different to leave an investment in X versus using new money to buy X, versus rebalancing by selling Y to buy X - but that's a cognitive bias.

Sounds like you are in a similar, fortunate situation. I certainly have strayed from my initial AA, though I don't think I'm yet in "unreasonable AAs". International markets are about 50% of the world market cap anyway, so I'm in that ballpark now. You could argue that I'm unreasonably far from my target AA of course, and it'd be hard to argue with that. Your comments on cognitive bias are well taken, thanks.

The point isn't if your AA is reasonable, that's up to you to decide. The issue is you aren't willing to follow an IPS. That might work out fine, or it might not. What will you do if a bear comes along and starts attacking your portfolio? Wing it? Or follow your IPS?

Just put new money in according to your AA and stop making it more complicated than that.

My RSU's and bonus equal 150% of my salary each year and add about 25% to my NW each year. I do what my IPS says:

The point isn't if your AA is reasonable, that's up to you to decide. The issue is you aren't willing to follow an IPS. That might work out fine, or it might not. What will you do if a bear comes along and starts attacking your portfolio? Wing it? Or follow your IPS?

Just put new money in according to your AA and stop making it more complicated than that.

My RSU's and bonus equal 150% of my salary each year and add about 25% to my NW each year. I do what my IPS says:

The point isn't if your AA is reasonable, that's up to you to decide. The issue is you aren't willing to follow an IPS. That might work out fine, or it might not. What will you do if a bear comes along and starts attacking your portfolio? Wing it? Or follow your IPS?

You're not wrong. It'll either work out fine or it won't. If a bear comes along and starts attacking my portfolio, I presume I'll continue buying the poorly performing assets (my EM is down 20% YTD, but that's what I bought today). "Winging it" when you are keeping the long-term in mind, when you are acting on investing thoughts that you're comfortable with, and when you're being open-minded about being wrong doesn't sound all that bad to me. An effective IPS that says "save a ton of money and make as good of decisions as you can" isn't necessarily bad. That said, it's easier mentally to just follow an AA, and I'd like to get back to that if not simply for that reason.

I'd like to understand how you're arriving at whether an asset is overperforming vs underperforming because it looks like that's what your strategy hinges on.
Are you using market returns against some arbitrarily defined mean? Are you just comparing the absolute returns? This doesn't work for different asset classes for obvious reasons.

Comparing VTI to VXUS is a pretty simple comparison, and is fairly apples to apples. I don't make evaluations of stocks vs bonds. My bond allocation is damn near exactly at 5% where it's set to be. With respect to equity/bond splits, I'm right on AA. I just am out of whack on the equity positions. I also don't factor time within countries or anything, and have no expectation about what factors may or may not be better valued.

---------

It seems this thread has been mostly about me defending what I'm doing, which is unnecessary I think. I'm not trying to convince anyone to do what I'm doing, nor am I asking for a blessing and a section in the Wiki. We have all set our savings rates, AAs, and investing styles independently, and it's hard to know which one will outperform in advance, and which are most suitable for our own psychologies. I was just wondering if others were struggling with any decisions that were like this, and which I didn't necessarily expect when I started my indexing journey. If the answer is "no", that's totally cool.

I'd like to understand how you're arriving at whether an asset is overperforming vs underperforming because it looks like that's what your strategy hinges on.
Are you using market returns against some arbitrarily defined mean? Are you just comparing the absolute returns? This doesn't work for different asset classes for obvious reasons.

Comparing VTI to VXUS is a pretty simple comparison, and is fairly apples to apples. I don't make evaluations of stocks vs bonds. My bond allocation is damn near exactly at 5% where it's set to be. With respect to equity/bond splits, I'm right on AA. I just am out of whack on the equity positions. I also don't factor time within countries or anything, and have no expectation about what factors may or may not be better valued.

GammaPoint,

Would you mind please provide an example?

So, let's say you have 100K now and you are adding 120K, aka 10K per month.

You start with 5K of the bond, 50K of US stock and 45K of the International stock. Your ratio is 5:50:45. You add 10K to whatever is low. After a few months of International stock, your ratio will be overweight on the International stock. Hence, you will be buying the US stock.

Or, you are just pure market timing and hope to be lucky.

You just buy whatever you think is cheap without thinking about whether it is above your ratio.

Comparing VTI to VXUS is a pretty simple comparison, and is fairly apples to apples. I don't make evaluations of stocks vs bonds. My bond allocation is damn near exactly at 5% where it's set to be. With respect to equity/bond splits, I'm right on AA. I just am out of whack on the equity positions. I also don't factor time within countries or anything, and have no expectation about what factors may or may not be better valued.

Ah, I understand now. So you look at returns for the last year for VTI vs VXUS and put money exclusively into whichever was lower with the expectation that that'll provide higher long-term returns. It's an interesting strategy and it'll be interesting to see where you end up in terms of asset allocation.

This would not have worked if you were in Japan during 1989-present btw - you'd have been almost exclusively in Japanese stocks by now even though the problem there is apparently structural - a rapidly aging/dropping population making it difficult to generate consumption/inflation. If I were you, I'd set an upper limit on AA between US and international (say, 50:50) to avoid being overweight on international. Is that what you were thinking?

Maybe I didn't explain it well. I could certainly rebalance or alter purchase decisions to get back within my AA. But my savings rate is high enough relative to my NW that I'm trying to put more of that new money into the poorly performing investments than my AA would dictate. Essentially, I'm trying to make AA purchase decisions according to my AA but with a NW total that's different than what mine is in actuality. Basically, I learned that my own personal psychology tends to have me buy under-performing assets and that that tends to be more important to me than sticking to an AA percentage that, while not coming out of thin air, was somewhat set arbitrarily (e.g., why 35% international and not 50%?).

I suppose I'm not really talking about a "problem" that I need help solving. I already know how to deal with it based on my own preference for risk, but was just bringing it up for discussion.

You’ll naturally buy more of the underperforming asset(s) even by maintaining your AA. By this logic you should move your entire tax-advantaged account to total international.

You just buy whatever you think is cheap without thinking about whether it is above your ratio.

I'm not dictating a general strategy here, so it shouldn't be approached that way. What do you think the default expectation is for US vs ex-US performance? 50/50 split on which one has higher future returns? And so just hold both in according to one's AA? Fine, that's a good strategy for most, and I understand the simplicity and logic behind that. But here are a couple other facts:

1). The US and ex-US markets have similar long-term returns, and ex-US markets have been seriously lagging since the GFC.
2). The CAPE shows some relationship to future 10-year returns.
3). People tend to pile into the assets which have performed better recently and abandon the recent losers.

Now you might not care about any of those 3 facts, but I do. They aren't going to cause me to go all-in on international, since anything could happen. But would I be willing to go beyond the default 50/50 chance of either outperforming to say, okay, maybe there's a 60% chance that international will outperform going forward? Sure, I'd do that (most major investment firms think the same, and Vanguard even suggested international outperformance in their own 2018 outlook for the future). Now it's a personal question how much AA drift one is going to tolerate if one thinks something has a 60% chance of outperforming. That personal question is what I'm dealing with now, and learning my limits to.

Ah, I understand now. So you look at returns for the last year for VTI vs VXUS and put money exclusively into whichever was lower with the expectation that that'll provide higher long-term returns. It's an interesting strategy and it'll be interesting to see where you end up in terms of asset allocation.

So I haven't really thought of this as a investing system that I intend to repeat, and I don't just look at one-year returns. Looking more at P/E ratios, relative valuation measures, CAPE values. There's a lot of good information in banks' yearly outlooks on this stuff (well, that and lots of fluff too).

This would not have worked if you were in Japan during 1989-present btw - you'd have been almost exclusively in Japanese stocks by now even though the problem there is apparently structural - a rapidly aging/dropping population making it difficult to generate consumption/inflation. If I were you, I'd set an upper limit on AA between US and international (say, 50:50) to avoid being overweight on international. Is that what you were thinking?

Yep, setting an upper limit to force myself to keep this under control is something I'm trying to figure out. Maybe something like that should go into my IPS too, since I can imagine similar situations and feelings coming back again (although again, this issue is not really about market timing per se, but more related to the feeling of needing to invest large amounts of money relative to my NW; outside of an inheritance or winning the lottery, that probably won't happen again for me).

But when your savings are higher, to stick to your AA, you might only put $X into the most underperforming asset (like international) to bring it up to the proper AA amount, but then you have more savings left over, which "should" then be spread among other assets too (including even the over-performing ones).

Yes, you understand what I'm saying correctly. And right now what I'm doing is "non-optimal" in that I'm investing in international regardless of how it impacts my AA. Alternatively, I could also create some artificial NW in my spreadsheets (say $1M), and allocate new money to investments as if I had more money invested. This would have the impact of still allowing me to buy assets that were underperforming in greater quantity, but would also direct some into the higher-performing investments, but still less than if I used my actual NW. Right now I guess I'm effectively doing this, but with an effective artificial NW of infinite dollars. And of course, I could just put new contributions towards fixing my AA, which might be a prudent thing to do as well.

Tilting towards factors internationally is always something I'm interested in, but have been wary of doing it due to expense ratios. I did recently bite the bullet on some FDNE, so I've got some value emerging markets now, but I haven't bit the bullet on any international value in the developed space.

In short, I understand your impuse to buy more of what might look like an undervalued asset class (intl stock), or at least to avoid buying more of what appears to be an overpriced one (US stock). But you really can't do so at the expense of your target AA, or at least a reasonable target AA. Just because international looks cheap doesn't mean you need 50%+ of your money in that asset. Diversification is key, as we all know. It feels different to leave an investment in X versus using new money to buy X, versus rebalancing by selling Y to buy X - but that's a cognitive bias.

Sounds like you are in a similar, fortunate situation. I certainly have strayed from my initial AA, though I don't think I'm yet in "unreasonable AAs". International markets are about 50% of the world market cap anyway, so I'm in that ballpark now. You could argue that I'm unreasonably far from my target AA of course, and it'd be hard to argue with that. Your comments on cognitive bias are well taken, thanks.

In your position, I would either comply with my asset allocation model, change it, or forget about asset allocation.

1). The US and ex-US markets have similar long-term returns, and ex-US markets have been seriously lagging since the GFC.
2). The CAPE shows some relationship to future 10-year returns.
3). People tend to pile into the assets which have performed better recently and abandon the recent losers.

Now you might not care about any of those 3 facts, but I do. They aren't going to cause me to go all-in on international, since anything could happen. But would I be willing to go beyond the default 50/50 chance of either outperforming to say, okay, maybe there's a 60% chance that international will outperform going forward?

I'm not sure CAPE and future 10-year returns are the only thing on the table though. Look at 2013 where low CAPE countries had higher returns and then again at 2014 where high CAPE countries (surprisingly) did. Factor currency into 2014 though and high CAPE was no longer predictive of better returns. Sure one year is too short but still, currency matters.

USD strength is at play, and flows are into the US now with it's higher rates. In any case, clearly parts of the world desire moving towards less USD dominance (energy settled in yuan backed by gold, expressed desire for independent EU settlement system, central banks holding gold instead of treasuries). In 20-30 years who know where we will be, but I expect that we may not see a repeat of the GFC where the currency of the country where the crisis originated strengthened.

I have invested similar to you, but think EM in particular may be in for a bumpy ride. And if EM currencies go into distress, I think the IMF has revised it's opinion on currency controls and may not strive to protect investors as it had done in the past.

I see nothing wrong with being 100% US which is about half of the global market but your own currency. Nor do I see anything wrong with being closer to market weight in terms of global capitalization. I chose the latter.

(although again, this issue is not really about market timing per se, but more related to the feeling of needing to invest large amounts of money relative to my NW; outside of an inheritance or winning the lottery, that probably won't happen again for me).

I find it fascinating how you are trying to justify that this isn't market-timing in the same post(s) you describe comparative performance and reversion to the mean. Really struggling to follow your money relative to NW argument but best of luck.

But when your savings are higher, to stick to your AA, you might only put $X into the most underperforming asset (like international) to bring it up to the proper AA amount, but then you have more savings left over, which "should" then be spread among other assets too (including even the over-performing ones).

Yes, you understand what I'm saying correctly. And right now what I'm doing is "non-optimal" in that I'm investing in international regardless of how it impacts my AA. Alternatively, I could also create some artificial NW in my spreadsheets (say $1M), and allocate new money to investments as if I had more money invested. This would have the impact of still allowing me to buy assets that were underperforming in greater quantity, but would also direct some into the higher-performing investments, but still less than if I used my actual NW. Right now I guess I'm effectively doing this, but with an effective artificial NW of infinite dollars. And of course, I could just put new contributions towards fixing my AA, which might be a prudent thing to do as well.

I'm not sure I understand your "artificial NW." You take your total investible assets (what's already invested, plus your savings you have ready to invest), then multiply that total by your AA percentages. No need to make up some artificial NW; if you do that then the results become meaningless, so there's really no target AA.

I certainly think reasonable minds can choose an international AA anywhere between about 0% and 60% (with 20%-40% being common). I guess the issue is most here believe AA decisions are best made impartially, where you sit down and try to come up with a logical basis for your choice, then stick to it regardless of market movement -- since the vast majority of people are very bad at choosing when to buy and sell; by definition MOST people buy high and sell low (that's what it means for a price to be high: more people are buying).

On the other hand, you seem to be making these decisions based on market timing (i.e., what "feels" low or has underperformed) and how much savings you just so happen to have available that year. Most people here don't think those are good reasons to change a solid AA you spent time coming up with. "Well, I got a bonus this year, so I guess I should have a higher percentage of international stocks than what I initially decided on" doesn't seem logical.

I do note that sticking to an AA and rebalancing (either with new savings or by selling/buying) DOES have some of what you want, i.e., it forces you to sell high and buy low (or at least buy low if using all new savings). But people like it (even though it could be called market timing) because it is objective, it does not rely on your feelings and choosing what you think will go up or down each year. There's a formula that you stick to, so it avoids most of the pitfalls of market timing.

Definitely not trying to "attack" your choices, just talking them through, both hopefully for your benefit and that of anyone else reading this.

I have invested similar to you, but think EM in particular may be in for a bumpy ride. And if EM currencies go into distress, I think the IMF has revised it's opinion on currency controls and may not strive to protect investors as it had done in the past.

I see nothing wrong with being 100% US which is about half of the global market but your own currency. Nor do I see anything wrong with being closer to market weight in terms of global capitalization. I chose the latter.

All interesting points. Gun to my head, I'm pretty bullish on EM economies generally, but I agree that currency issues is something I'm concerned about and wouldn't be surprised if my VWO purchases continue to hurt for awhile.

I find it fascinating how you are trying to justify that this isn't market-timing in the same post(s) you describe comparative performance and reversion to the mean. Really struggling to follow your money relative to NW argument but best of luck.

Perhaps part of the problem is that I'm not really interested in whether this is an example of "market timing" and the connotations that occur with throwing that word around these forums, whereas it seems whether I admit it to being market timing or not is largely what you're interested in here? I'm not denying that I have views on the market that are impacting how I invest new money. I'm just saying that normally I don't give into those views, but since I have such large investments relative to my NW I feel it might be worth the hassle to care about such things (since I didn't have, for example, that much money in absolute terms in international). You don't have to agree with the logic, and I'm okay with you calling me a market timer if you like to.

I'm not sure I understand your "artificial NW." You take your total investible assets (what's already invested, plus your savings you have ready to invest), then multiply that total by your AA percentages. No need to make up some artificial NW; if you do that then the results become meaningless, so there's really no target AA.

The artificial NW suggestion was a half-baked comment about how one could over-allocate to underperforming assets, but still with some basis in the relative out-performance between the components. Suppose we don't need to get into the details, but functionally it would be similar as using the actual NW in the spreadsheet to divvy up contributions, but then juicing one of them with a multiplicative factor. It still takes one away from one's target AA, but just doesn't lead to such extreme disparities.

I certainly think reasonable minds can choose an international AA anywhere between about 0% and 60% (with 20%-40% being common). I guess the issue is most here believe AA decisions are best made impartially, where you sit down and try to come up with a logical basis for your choice, then stick to it regardless of market movement -- since the vast majority of people are very bad at choosing when to buy and sell; by definition MOST people buy high and sell low (that's what it means for a price to be high: more people are buying).

I absolutely agree with everything here. Most people do buy high and sell low, and from what I see all around me is piling into US assets and that makes me uncomfortable. I wouldn't allow myself to buy into the assets that were being celebrated because of my own views on the market because I feel the odds of me "buying high and selling low" would be dramatically increased. For example, I feel that Amazon might keep on dominating retail and the stock price might continue to climb, but I know that that has performed well lately so I would never allow myself to buy it just because there's a greater likelihood I'm making conventional mistakes (I don't hold individual companies anyway so this is just for illustration). However, if I'm buying the assets that people are saying "why hold international, VTSAX is all you need?", then I feel comfortable making such a deviation. Buying not in accordance with my AA makes me uncomfortable, but buying US assets at this current time (especially in the quantity I would be purchasing them) makes me even more uncomfortable. I expect the situation to change at some point and I can happily go back to simply buying according to my AA (I held no feelings that I acted on from 2008-2016, so it's not like I'm looking for small things to cling to).

Also can you provide what metric shows the US is overvalued? It has outperformed recently but in the very longterm (1900+) we actually are right on pace. P/E also looks to be just a tad over the longterm average.

All that matters is what % you have in each at the end of the day. The history of your account balance and allocation are completely irrelevant. It doesn't matter what you purchased today, last week, or last year, and it doesn't matter what your previous account balances were.

So pick a % you want in international (based on whatever you think is right: gut feeling, efficient frontier, past underperformance, etc). Then purchase the right amount of international and domestic in order to get your accounts to that %

All that matters is what % you have in each at the end of the day. The history of your account balance and allocation are completely irrelevant. It doesn't matter what you purchased today, last week, or last year, and it doesn't matter what your previous account balances were.

So pick a % you want in international (based on whatever you think is right: gut feeling, efficient frontier, past underperformance, etc). Then purchase the right amount of international and domestic in order to get your accounts to that %

I think you missed the fact that the OP has an artificial NW much higher than their current one.

Agree though... it really is this simple, at least when the accounts are mostly tax-advantaged and maintaining balance doesn't require taxable events.

Well, long-term I'd probably like something like 40-50% international. Being based in the US, I'm okay with a little home country bias (both for relative wealth concerns, but mostly for the fact that it's cheaper for me to invest here and a lot cheaper to invest with factor tilts in the domestic market).

Also can you provide what metric shows the US is overvalued? It has outperformed recently but in the very longterm (1900+) we actually are right on pace. P/E also looks to be just a tad over the longterm average.

That's actually a really interesting topic and there's lots of figures, metrics, what have you that we could use to discuss that. I'd be up for talking about it sometime, although unfortunately work is a little busy right now so I can't spend too much time leading that discussion (at least don't have the time to be the EMH antagonist here defending myself ). If someone else wants to lead it (presumably in another thread more dedicated to that), then I might try to chime in here or there.

I have invested similar to you, but think EM in particular may be in for a bumpy ride. And if EM currencies go into distress, I think the IMF has revised it's opinion on currency controls and may not strive to protect investors as it had done in the past.

I see nothing wrong with being 100% US which is about half of the global market but your own currency. Nor do I see anything wrong with being closer to market weight in terms of global capitalization. I chose the latter.

All interesting points. Gun to my head, I'm pretty bullish on EM economies generally, but I agree that currency issues is something I'm concerned about and wouldn't be surprised if my VWO purchases continue to hurt for awhile.

I am very curious about the reason to be bullish about EM economies.
I lived 25 years in an EM country and I visited a lot more. In my opinion is absolutely no reason to be bullish about them, at least not in my time horizon of several decades.
The only reason I own some is speculative and hedging purposes.

I am very curious about the reason to be bullish about EM economies.
I lived 25 years in an EM country and I visited a lot more. In my opinion is absolutely no reason to be bullish about them, at least not in my time horizon of several decades.
The only reason I own some is speculative and hedging purposes.

Standard reasons I guess: positive demographics (especially relative to market cap), technological catch-up effects, and lower valuations. What don't you like about them?

It depends about which EM we are talking about, because a lot of different countries are lumped together.
Most funds are dominated by China, Taiwan, Korea, Russia, India, a little Eastern Europe. If demographics is your criteria, except India all of them have terrible demographics, much worse than US (and Taiwan and Korea are not even "emerging", they emerged a while ago).
In many countries from EM, educated people immigrate and the ones left are the least educated ones. So what good does it do?

Most if not all have huge issues with corruption, bad management, incompetence, lack of law enforcement, transparency and competition. Who knows what is in those companies, it's not like you can trust their accountants. You expect that funds can do due diligence but I don't think is the case.

Of course, the currency and the fact that that their government has complete control over it is not a great thing either.

So sure, put some money in EM, but I wouldn't risk a large slice of my portfolio.